Last week’s technology earnings reports included companies such as Palantir AND Arm indicated how artificial intelligence increases their revenues. This made investors joyful and the shares of both companies soared. After all, last year, amid so much hype around AI, Nvidia and Microsoft were the only companies that could show how AI actually drives revenue.
As generative AI technology continues to advance and roll out to a wide range of tech companies this year, investors will want to distinguish between companies that are simply telling an AI story and those that are actually seeing the financial impact, said Gil Luria, senior software analyst at financial services company DA Davidson.
In 2023, many companies have gained praise from investors just for talking about AI. S&P500 companies citing artificial intelligence in earnings calls have also peaked this year. This year, however, investors will increasingly put pressure on companies to show how artificial intelligence actually impacts their finances.
Palantir and Arm lead the way
Palantir shares rose 30% in one day. last week after the data management company said its generative AI product was generating revenue and fresh customers. Demand for multilingual models – artificial intelligence systems that power chatbots – from commercial enterprises are “relentless,” CEO Alex Karp told investors on an earnings call.
Arm, a British chip designer whose technology can be found in smartphones and desktop computers, says revenue is boosted by long-term licensing deals with technology companies that operate their most advanced processors to power AI products. Fittings stocks increased by over 55% on Thursday after publishing its quarterly earnings report.
Microsoft AND Amazon also indicated that AI demand continues to drive revenue for their cloud businesses. Six percentage points of growth in Microsoft’s Azure division is driven by artificial intelligence, which translates into billions of dollars, Luria said.
“At the End of the Hype Cycle”
So far, only a few companies have seen the benefits of AI in their results this year.
“We will move beyond the hype cycle and take a more realistic perspective that distinguishes between the handful of companies that will benefit from AI in the low term and all the remaining companies for whom it will be a business-changing but not necessarily a benefit,” she said Luria.
The immense majority of technology companies will not immediately benefit from generative AI. However, this technology is expected to profoundly change business and work.
As generative AI tools mature and become more useful, the technology will make mental work more productive, Luria said. AI tools are already helping people summarize and read content faster, as well as write code faster, and this is likely to improve over time.
“This will take care of everything [white-collar workers] more productive,” he said, “which should have a profound impact on the overall economy.”
